Dec. 4–Strong Capital Management Inc. has hired Goldman Sachs Group Inc. and is seeking interest from potential bidders for the company before Christmas, a source familiar with the situation toldthe Milwaukee Journal Sentinel Wednesday.

Strong hired Goldman, but a sale of the investment firm is just one option under consideration, a Strong spokeswoman said.

“A sale of the company is among the strategic alternatives we are considering,” said Stephanie Truog. “Nothing may come of this exploration. But it’s an opportune time to be looking at all the options, and that’s just what we’re doing.”

Those options are likely either an outright sale or a management buyout of the company.

Strong employs about 1,300 people at its Menomonee Falls headquarters. The company has been rocked by allegations raised by New York Attorney General Eliot Spitzer in a broad investigation of the nation’s mutual fund industry.

Word of a potential sale of the company came one day after Richard S. Strong, who founded the firm in 1974, stepped down as chairman and chief executive of Strong Financial Corp. and said he would divest himself of voting control of the company.

Strong, 61, was replaced as chairman and chief executive officer by investment banker Kenneth Wessels.

Goldman is widely considered to have the best mergers and acquisitions practice on Wall Street, but it will be Richard Strong who has the final say regarding who eventually owns his privately held firm and how much they pay for it.

“With a public company, you want the absolute last dollar for the shareholders,” said John L. Beagle, managing director of mergers and acquisitions at Grace Matthews Inc., a Milwaukee investment banking boutique. “With a private company, you could sell it to the Salvation Army for a buck if you wanted to.”

Strong owns about 90 percent of the Menomonee Falls firm.

Strong’s troubles began Sept. 3, when Spitzer implicated Strong Capital Management for giving a New Jersey hedge fund special opportunities to trade in certain Strong funds that other shareholders didn’t have.

The company’s problems intensified Oct. 29, when Spitzer’s office said it planned to take action against Strong personally, based on allegations of improper short-term trading of his company’s mutual funds. That move prompted Strong to resign as chairman of the firm’s mutual fund board. Spitzer’s office did not rule out criminal charges against Strong.

Strong said his trades were not “disruptive” to any funds and promised to compensate the funds for any losses they may have caused.

Spitzer has not taken action against Strong or charged the company with anything to date.

Sources close to Strong have said Strong’s resignation was not a “bargaining chip,” and a spokesman for Spitzer said Wednesday it would not affect that office’s investigation. But others suggest it could affect how the company emerges from the cloud it is now under.

“One thing we don’t know is what kind of pressure the SEC and Spitzer are applying — presumably selling the company would make it easier for the company to settle,” said Russel J. Kinnel, head of equity research at Morningstar Inc. in Chicago.

Kinnel said potential acquirers would likely view Strong as a low-priced acquisition rather than a company that they would be willing to pay top dollar for. Banks, which would be more likely to convert Strong’s funds to higher-fee products, might be the most likely buyers.

A logical buyer would be a consumer services company such as Milwaukee-based Northwestern Mutual Life Insurance Co., New York insurer American International Group or London financial services group Barclays PLC, that could cross sell its products into Strong’s customer base, said R. Thomas Dempsey, principal at Morgan Dempsey Capital Management LLC in Mequon.

“Someone with a great brand name that can calm the waters could really leverage this client base making this, at any price, a rather cheap acquisition,” Dempsey said.

Still, some buyers might not want to take on Strong’s problems.

“If you’re absolutely clean at this point, are you willing to go out and buy somebody who is tainted — or do you become very aggressive in terms of your marketing and say ‘We can get this share without buying them,’ ” said Eric F. Richter, managing director of North Star Asset Management Inc. in Menasha.

Paul Herbert, a mutual fund analyst at Morningstar predicted the sale price could total $1 billion, although buyers will have some bargaining power because of the scandal.

Strong has acknowledged previously that he declined a reported $1 billion offer from Britain’s Prudential Corp. in late 1997 because he thought his employees would fare better if the firm remained independent.

“The ideal outcome for the employees and the state is that management and employees, backed by private equity, buy the company,” Grace Matthews’ Beagle said. “That guarantees that Strong remains a key part of Milwaukee’s financial community.”

The company’s statement didn’t provide much clarity about what kind of transaction might occur.

“We would be looking for a strategic partner who recognizes Strong’s value as an organization and not just for its assets; one that would be interested in preserving the best aspects of the firm and would appreciate the significant merits of both our people and our unique investment model,” Truog said in the statement.

Strong has 1,284 employees and in 2002 paid about $1 million in municipal taxes on its Menomonee Falls property, which is assessed at $47.5 million, according to village records.

Many village residents are hoping that local ownership of the company would continue.

“It would be a huge loss to the community of Menomonee Falls,” said Sharon Ellis, a village trustee who left a job at Strong in December 2000 to become a consultant for, among others, Strong.

“I hope that they’ll be looking for a partner that would be serious about keeping them in Menomonee Falls.”

Reid J. Epstein of the Journal Sentinel staff and the Associated Press contributed to this report.

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